Chapter 7: Life insurance overview and life products

Question 1

Pure endowment/ Endowment assurance

Answer 1

• Pure Endowment provides a benefit on survival to a known date and hence operates as a savings vehicle
• Endowment assurance also provides significant benefit on death of the life insured, operates as a vehicle of dependent protection.

Question 2

Whole life assurance

Answer 2

Provides a benefit on death of the life insured whenever that might occur.

Question 3

Term assurance

Answer 3

Provides a benefit on death of the life assured provided it occurs within the term selected at outset.
Normally don’t have any benefit paid on withdrawal.

Question 4

Convertible / renewable term assurance

Answer 4

Combine a term assurance with the certainty of being able either to convert to a permanent form of contract (ie an endowment or whole life assurance) or to renew the original contract for a further period, all without further evidence of health being provided.
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Question 5

Immediate annuity

Answer 5

Involves a single premium purchasing an income stream, which commences immediately after purchase.

Question 6

Deferred annuity

Answer 6

Can be used when there is time between the date of purchase and the date when the income is required to start.
The contract can be paid for either by a single premium or by regular premiums during the deferred period.

Question 7

Income drawdown

Answer 7

Allows an individual to leave their accumulated pension fund at retirement invested and draw an income from it annually.
May be limits on how much can be draw each year and an age limit at which point an annuity must be purchased.

Question 8

Income protection

Answer 8

Enables individuals to provide an income for themselves and their dependents during period of long-term sickness or incapacity due to accident or illness.
Typically terminate at retirement age.

Question 9

Critical illness

Answer 9

Provides a cash sum on the diagnosis of a “critical” illness as defined by the policy documents.

Question 10

Long-term care

Answer 10

Contract can be used to help provide financial security against the risk of needing either home or nursing home care as an elderly person, ie post-retirement.

Question 11

4 Investment types

Answer 11

• without-profit
• with-profit
• index-linked
• unit-linked

Question 12

With-profit contract

Answer 12

Benefit involves a share in the surplus of the company. The share is discretionary.

Question 13

Unit-linked contract

Answer 13

Benefit depends on the value of a unit fund

Question 14

Index-linked contract

Answer 14

Benefit moves in line with a specified investment or economic index